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Reduced employee EPF contribution – a little less burdensome for car loan borrowers?

Reduced employee EPF contribution – a little less burdensome for car loan borrowers?

FOLLOWING the recent announcement that the employee EPF contribution has been revised down to 8 percent from 11 percent from March this year till December 2017, this would mean that the net income bracket for consumers and their borrowing capacity will be expanded.

As an example provided by MIDF Research, the move which is one of the key measures of the revised 2016 Budget would allow those earning between RM3,000 to RM10,000 per month, consumers will have about RM90 to RM300 extra every month.

Another example would be based on the assumption that a borrower has a 9-year loan repayment period with a 2.8 percent interest rate and 90 percent financing margin. This would increase his purchasing power to between RM8,500 and RM29,000.

“A person who could afford a car in the RM50,000 price segment can now afford a RM58,500 to RM79,000 car based on the improved borrowing capacity,” MIDF Research said in its statement to Cars Bikes & Trucks this week.

“In reality of course, we think the positive impact on borrowing capacity will likely be moderated given cautious consumer sentiment and the reluctance to build up too much debt in an uncertain global economic environment.”

Malaysian prime minister Datuk Seri Najib Tun Razak also announced that the government would offer a special tax relief of RM2,000 to individual taxpayers who are earning RM8,000 and below.

Having said that, the net impact is not expected to be significant.

“A RM2,000 annual tax relief translates into the freeing up of RM475 in net income. We think this is too small to have an impact on car purchasing decisions on top of it being a one-off benefit and does not enhance borrowing capacity, though it might reduce the burden of down payments for cars in the cheaper price segment,” the research firm opined.

Interest rate (%) 2.8 2.8 2.8 2.8
Loan tenure (years) 9 9 9 9
Car price (RM) 50,000 50,000 58,500 79,000
Loan at 90% financing margin 45,000 45,000 52,650 71,100
Monthly repayment (RM) 522 522 610 824

Source: MIDF Research

 

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